Study Finds Bankruptcy Bonuses Work

In bankruptcy, you need to spend money to save money, even if that means spending it on the same management team that steered a business into Chapter 11.

That’s the counterintuitive finding of a new bankruptcy study by two university professors who found that so-called incentive bonus plans for managers of bankrupt companies “significantly improve” outcomes for creditors.

“Firms that adopt these plans—especially the incentive plans—are more likely to emerge, have shorter duration in restructuring and are less likely to violate the absolute priority rule under bankruptcy law,” said Wei Wang, an assistant professor of business at Queen’s University in Kingston, Ontario, in an interview Thursday.